Question

"A new American import quota on imported steel would be likely to: Select one: a. increase the production of steel-using American firms. b. increase American production of steel. c. generate tax revenue to the government. d. reduce the cost of production to steel-using American firms.

Answer 1

Answer: Increase American production of steel (B)

Explanation:

A quota is a numerical limit on the amount of units of a product that can be imported. A quota is a form of protection or trade restrictions used by a country.

Like every other forms of trade protection such as tariffs, embargo etc, the quota is used by a country to help it's infant and local industries to grow, provide employment opportunities for it's people and also lead to economic growth.

If a quota is placed on imported steel, there'll be a reduction in the number of steel imported into the country and this will lead to a rise in the number of steels produced by American firms.

Answer 2

Answer:

B) increase American production of steel.

Explanation:

The current administration already set an import quota and additional tariffs on imported steel and the effects are mostly negative. The only ones that benefit from them are domestic producers of steel since the price of their products increased dramatically. Their total production also increased, although not enough to offset the reduction in imported steel This is done to increase the pressure on the local prices of steel so that they keep increasing.

Everyone else has lost with this policy:

1. other industries that use steel have to pay a much higher price now, and that increases their total costs ⇒ supply curve shifts to the left, increasing the price of their products regardless of the quantity demanded.
2. exporting industries suffer twice because the price of a key input increased a lot while the price of that same input in foreign markets hasn't. That means that American exporters will have to compete against foreign industries but with much higher costs.
3. finally, every single consumer in America suffers because the price of products that require steel increased. It is inevitable when the price of a key input increases, and the supply curve shifts to the left, that consumers will end up paying a higher price.

Import tariffs and quotas always benefit a small group (generally business owners and to a smaller extent their workers) while hurting the rest of society.